Corruption and Bilateral Trade Flows: Extortion or Evasion?

Abstract

We analyze the impact of corruption on bilateral trade, highlighting its dual role in terms of extortion and evasion. Corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (extortion effect); however, with high tariffs, corruption may be trade enhancing when corrupt officials allow exporters to evade tariff barriers (evasion effect). We derive and estimate a corruption-augmented gravity model, where the effect of corruption on trade flows is ambiguous and contingent on tariffs. Empirically, corruption taxes trade in the majority of cases, but in high-tariff environments (covering 5% to 14% of the observations) their marginal effect is trade enhancing. (c) 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Does Corruption Hinder Trade for the New EU Members?

“…Building on the work of Helpman et al (2008) and Dutt and Traca (2010), we use a common religion index and a measure of remoteness as instruments, along with lagged values, in an attempt to overcome this problem. The estimated coefficients are reported in column 2 of Table 4.…”

“…Dutt and Traca (2010) used bilateral trade data over the sample period 1982 and 2000, covering 128 exporters and 126 importers, and found that the effect of corruption is ambiguous and depends upon the level of trade protection in the economy. While corruption generally hinders trade, a positive relationship appears as the government-erected barriers to trade rise.…”

Greasing the Wheels of Change: Bribery, Institutions, and New Product Introductions in Emerging Markets

“…The consensus in the literature is that corruption is detrimental for a country, and its negative consequences are consistently found in relation to key economic indicators such as GDP growth, trade, productivity, or foreign direct investment (Cuervo-Cazzura, 2008;Anokhin & Schulze, 2009;Dutt & Traca, 2010). In contrast, there are significant gaps in our understanding of the consequences of bribing for firm strategies (Galang, 2012;CuervoCazurra, 2016), and in particular for innovative performance (Mueller et al, 2013).…”

“…Prior studies support this conjecture and find negative effects on economic growth (Mauro, 1995), productivity (Asiedu & Freeman, 2009;de Rosa, Gooroochurn, & Gorg, 2010), trade (Dutt & Traca, 2010), foreign investments (Cuervo-Cazurra, 2006), entrepreneurship (Anokhin & Schultze, 2009), and social development (Rose-Ackerman, 1998). In contrast, an opposite view in the literature argues for positive effects of corruption, especially in weak institutional settings (Meon & Weill, 2010;de Vaal & Ebben, 2011) where the costs of preventing it usually outweigh the benefits (Acemoglu & Verdier, 2000).…”

Democracy and International Trade: Differential Effects from a Panel Quantile Regression Framework

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